Yuan loses 3 per cent in nine days, points to tolerance for weakened currency in Beijing as US trade war looms
Offshore yuan drops to lowest level since December 21, 2017
The yuan dropped for a ninth day on Tuesday, extending its longest losing streak in four years, because of expectations that the People’s Bank of China (PBOC) was shifting to a policy allowing the Chinese currency to depreciate amid an escalation of China-US trade tensions.
[The yuan’s] weakness has accelerated since concerns intensified the US and China could embrace a trade war
On Tuesday, the offshore yuan traded at 6.5911 per US dollar, down 0.6 per cent from Monday, marking its biggest daily drop since February 8. It is now trading at its lowest level since December 21, 2017.
Against a basket of currencies, however, the yuan was trading near a two-year high of 97.88 hit in May, according to the China Foreign Exchange Trade System RMB index.
Resilience in the yuan relative to a sell-off in other currencies, such as the euro, this year reflects the PBOC’s efforts towards stabilising the currency to attract foreign investors to buy mainland stocks and bonds, thus internationalising the yuan.
However, the recent accelerated decline in the yuan, which has dropped 3 per cent in the past two weeks, against the dollar points to a change in the central bank’s policy of tolerating a depreciating yuan, analysts have said.
This has quickly transformed the yuan from being one of the best performing emerging market currencies across the globe to now trading more than 0.7 per cent lower year to date.
“The PBOC is likely to allow the yuan to depreciate to offset potential slowing exports from the escalating trade conflict,” said Jimmy Zhu, chief strategist at Shanghai-based Fullerton Markets. Zhu forecast the yuan to drop to 6.61 against the US dollar by the end of the third quarter, while the Chinese currency was most likely to have peaked against the basket of currencies.